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02/08/2009

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redmund sum

PQuincy,

You are right that shareholders have very little power to limit what the execs can do. This is as it should be. For most people, the primary purpose of owning shares is not to participate in the running of the company, but to share the fruits of a well-run company. I don’t see the merit in having a million voices telling the managers what to do.

The typical shareholder has too little stake in the business to influence management decisions. But they can do two things: 1) They can sell their shares if they are not happy, or 2) they can buy more shares so they can acquire a more influencing position, as Carl Icahn recently did at Yahoo.

Thomas Brownback

Jack:

"You sort of ducked the question of "more on welfare and transfer programs"."

I intended to imply that such transfers would go down, as eliminating the minimum wage would allow more who need the work to find employment.

"I see NO future in running our nation as a nation of gilded wealth among the very few"

I completely agree. Casting me as so brutally pro-rich and anti-poor might lead to some confusion about my position, so let me be clear: My largest priority is helping the working poor. You need not argue that we should help them, you only need argue that the minimum wage actually does help them, rather than hurt them. A few hundred years of theory and confirming empirical data seem to be against you.

You mention discrepancies in bargaining power, but there is uncoordinated and fierce competition for labor, so this does not apply. In fact, any labor surplus supported by wage controls would lessen the ability of workers to bargain for favorable terms or treatment, which illustrates another way the minimum wage hurts the working poor.

On the $18 an hour minimum wage, I think it's important to recognize that not everyone working a minimum wage job is doing so to support a family. In fact, adverse selection can occur when you increase the minimum wage, you attract more competitors for those positions who don't need the work as badly (suburban high school kids, say). The suburban high school kids, lured by the high wages, outcompete the struggling poor families, and push them onto the street. This is yet another way the minimum wage hurts the working poor.

Your discussion of foreign labor raises some interesting questions. I hesitate to reply too hastily, so forgive me for ducking this section for now.

I actually have a neutral to positive view of transfer programs. Given the marginal increasing utility of goods, it seems like taking a dollar away from a millionaire and handing it to a hundredaire is an easy net societal gain. The difficulty is in structuring such programs to minimize transfer costs and impacts on incentives, but I don't believe such problems are wholly insurmountable.

If it came down to it, and I don't think it does, I'd prefer transfer programs to a trebling of the minimum wage, because, once again, I believe that the minimum wage hurts the working poor.

My original point was that it was odd for Becker to complain about wage controls attached to a stimulus package he disagrees with. Perhaps, if nothing else, we might agree on Mr. Becker's inconsistency? :)

Thomas Brownback

Jack:

"You sort of ducked the question of "more on welfare and transfer programs"."

I intended to imply that such transfers would go down, as eliminating the minimum wage would allow more who need the work to find employment.

"I see NO future in running our nation as a nation of gilded wealth among the very few"

I completely agree. Casting me as so brutally pro-rich and anti-poor might lead to some confusion about my position, so let me be clear: My largest priority is helping the working poor. You need not argue that we should help them, you only need argue that the minimum wage actually does help them, rather than hurt them. A few hundred years of theory and confirming empirical data seem to be against you.

You mention discrepancies in bargaining power, but there is uncoordinated and fierce competition for labor, so this does not apply. In fact, any labor surplus supported by wage controls would lessen the ability of workers to bargain for favorable terms or treatment, which illustrates another way the minimum wage hurts the working poor.

On the $18 an hour minimum wage, I think it's important to recognize that not everyone working a minimum wage job is doing so to support a family. In fact, adverse selection can occur when you increase the minimum wage, you attract more competitors for those positions who don't need the work as badly (suburban high school kids, say). The suburban high school kids, lured by the high wages, outcompete the struggling poor families, and push them onto the street. This is yet another way the minimum wage hurts the working poor.

Your discussion of foreign labor raises some interesting questions. I hesitate to reply too hastily, so forgive me for ducking this section for now.

I actually have a neutral to positive view of transfer programs. Given the marginal increasing utility of goods, it seems like taking a dollar away from a millionaire and handing it to a hundredaire is an easy net societal gain. The difficulty is in structuring such programs to minimize transfer costs and impacts on incentives, but I don't believe such problems are wholly insurmountable.

If it came down to it, and I don't think it does, I'd prefer transfer programs to a trebling of the minimum wage, because, once again, I believe that the minimum wage hurts the working poor.

My original point was that it was odd for Becker to complain about wage controls attached to a stimulus package he disagrees with. Perhaps, if nothing else, we might agree on Mr. Becker's inconsistency? :)

Thomas Brownback

(Sorry for the double post!)

Jack

Thomas sez:

"I intended to imply that such transfers would go down, as eliminating the minimum wage would allow more who need the work to find employment."

.......... Not many "need work" at sub-min wage levels, what they DO need is a paycheck, hopefully, as mentioned, might come close to covering the most basic std of living. The transfers are, in fact, increasing, and I was stunned, really, to hear Bernanke testify before Congress that were he forced to choose between increasing the min wage or increasing the EITC subsidy for low income workers that is so abused by Walmart, the next wealthiest corporation in the world from Exxon's recent gleanings.

As for your hundred years of data...... it appears that you skipped the chapters I summarized for you in my last post.

(As an aside....... what exactly is our ailing economy suffering from? LACK OF DEMAND. Predictable lack of demand as FLAT wages being gobble up by energy and H/C are really FALLING wages, and, of course when most of the consumers have no discretionary income it's not hard to predict that the sales of consumer goods too will fall.)

As for: "In fact, any labor surplus supported by wage controls would lessen the ability of workers to bargain for favorable terms or treatment, which illustrates another way the minimum wage hurts the working poor."

.......... Oh? How so? If the "bargaining" which I've reminded you does NOT take place at the lower wage levels is above the miserly $7 no harm is done. Are you in fact arguing in favor of the "bargaining" beginning as $5? or zero?????

"On the $18 an hour minimum wage, I think it's important to recognize that not everyone working a minimum wage job is doing so to support a family."

........ so far I've not come out for an $18 min wage, only that we as a society surely have a problem, in fact 10's of millions of problems when wages for many are but half what it costs to maintain a min standard of living. I thought I covered it well in my last post. As for "not supporting a family" or as I mentioned ONE person, why should any human being work below the costs of maintaining life? If your corpie wanted a delivery van, he'd have to pay the costs of capital and operating costs.......... or settle for a scooter? bus? walking?

As for your "high school kids" most often they can not offer full time commitment and I've little objection to a temporarily lower wage for those of school age or in a TRUE apprentice program.

The foreign labor problem? I picked that up from what I'll refer to for now as the "smartest economist in the room" in a committee hearing a few years back. He's OBVIOUSLY right. In recent years it's been labor intensive handiwork that has been subjected to infinite competition. Next week it will be engineering and techy stuff; as we see, China and India both produce more eng and techies than does the US. Soon? those fat jobs on WS and the wages that many want to protect (while happily beating down UAW and low wages) will go there too. (Unless you see some reason that "traders" and those merging huge international corporations need be on WS with salaries affording the costs of living the high life on Long Island?)

You, as Bernanke, puzzle me with your seeming soft spot for transfer programs. Surely one of the most important tools of capitalism is that of directing scarce resources to the most productive endeavors. Walmart serves as a good and well known example: By combining low wages with federal and state subsidies they are even more able to come in an clobber local merchants.

Walmart to its credit, has developed distribution to a fine art, and has become one of the wealthiest corporations in history, now why should the taxpayer subsidize their labor costs? Surely to those who believe in capitalism this is distorting the market, and in Walmart's case to the disadvantage of local businesses that may pay more, and who keep more of the profits from the locale in that locale. Are we forgetting a few of our principles of economics?

As for "the min wage" or even a wage obtained by collective bargaining "hurting" the recipients, it's simply not the case. While in a static model you can probably gin up a supply demand scenario predicting fewer hires, over time the higher wages makes us a more productive society.

Examples?? At low wages you don't mind paying guys with shovels to dig your ditch, or a carpenter with a handsaw to remodel your home. America is built on combining capital with labor, so we have a well paid guy on a ditching machine or better yet a boring machine, and a carpenter with $10,000 worth of nail guns, power saws, ladders and a truck or van to bring it all to the job.

Well, Thom! I'm looking for areas of agreement! But! I don't think it inconsistent not to favor the stimulus in the first place and also argue against the pay cuts (that US new stockholders may well insist upon!) As near as I can tell, Posner is something of an ivory tower dude and a corporate royalist as well. So far I've yet to see him take the side of the beleagured working blokes, and here he is again, sticking up for the outlandish gleanings of these WS thieves whose pay has quadrupled while that of the median household has remained flat or fallen behind.

It appears to me that "Chicago School" means pandering to the North Shore with little concern for South Chicago and Cabrini Green.

Jack

Whoops! something missing! Bernanke favored increasing the EITC over raising min wage. "Creeping socialism?" Will the corpies soon pay only a token wage with a host of transfer programs covering the rest? How will that direct scarce labor and creativity to the most efficient enterprises?

OregonGuy

Hey, Prof,

I'd prefer it if you would grade some of the responses here.

Just to let them know the meaning of "fail".

raivo pommer

EXSPERTER WARNER KREDITNEHMERS

von Raivo Pommer

Vor einer Falle beim Vergleich von Kreditangeboten warnt die ING-DiBa: Unter Umständen droht eine Herabstufung der Bonität durch die Schufa, die Schutzgemeinschaft für allgemeine Kreditsicherung. Das kann zur Folge haben, dass ein Kreditantrag abgelehnt wird oder der Kredit nur zu einem höheren Zinssatz zu erhalten ist.

Keine Gefahr besteht nach den Angaben der Experten, wenn eine Bank Einheitskonditionen für alle Kreditnehmer ausweist und beim Angebotsvergleich keine persönlichen Daten angegeben werden müssen. Aufpassen sollten Verbraucher bei der Jagd nach Kreditschnäppchen hingegen bei Banken, die den Zins von der Bonität des Kunden abhängig machen.

Erkennen lassen sich solche Angebote daran, dass kein fester Zinssatz ausgewiesen wird, sondern mit Begriffen wie beispielsweise "Ratenkredite ab 6,9 Prozent" geworben wird. Um ein konkretes Angebot zu erhalten, müssen Verbraucher bei solchen Geldinstituten ihre Adressdaten sowie weitere Angaben zur Einkommens- und Vermögenslage hinterlassen. Um den bonitätsabhängigen Zins zu ermitteln, fragt dann die Bank auf Basis dieser Daten bei der Schufa an.

Hier entscheidet sich, ob der Interessent daraus Nachteile hat: Wird die Anfrage von der Bank als reine Konditionenanfrage deklariert, hat dies keine Auswirkung auf den so genannten Score-Wert, mit dem die Schufa die Bonität eines Kreditnehmers angibt

Jack

Redmund, I'd have to disagree. There could be nothing better for the health of our corporations and our overall financial sector than that several seats on the board of directors be reps of the stockholders, instead of having them all come from interlocking directorates, and as we see, agreeing with each other that millions in salaries, more millions in "performance bonuses" and more millions in golden chutes are their entitlements.

As you surely know the CEO and his cadre of execs run the day to day biz, but the Board really ought to be convinced that a fleet of private jets and outlandish "compensation" packages are good for the future of the company and its stockholders.

redmund sum

Jack: To say the fleets of corporate jets are outlandish is like saying Whopper on the double is unhealthful. They are true, but still, we don’t want to ban them. Just like sometimes people indulge themselves on Whopper on the double, sometimes company executives indulge themselves with private jets. By the way, these jets have legitimate uses, such as to save precious traveling time and for emergency customer service missions. I am not to argue that these private jets are not mostly perks in nature, but corporations have to be allowed to run their business their own way, even if some of their policies are self-destructive.

What! Even self-destructive? Yes. Companies do fail, and they should be allowed to fail if they are so poorly managed that they cannot survive in the competitive market – whether it is because they bought too many private jets, or paid fat exec bonuses, or they paid their unionized workers way above market wages, working or not working. Failure is an essential part of the success of the capitalistic system. As a share holder, you vote or you walk.

The thing we most cherish as a society is not a system of governance where companies will never fail and people have guaranteed income; what we cherish most is freedom. Because we don’t know how to achieve the former, we embrace the latter, even if it does not yield perfect outcome.

Jack

Redmund: I live in Alaska where we're very familiar with the use and need for aircraft, and I know well that guys doing certain kinds of high tech or fast moving service can make private jets payoff, as can Presidential candidates. But let's be honest here, how crucial is a fleet of private jets to those doing mergers?? or other deals on Wall Street? But you already agree that they are largely perks and tool for shoring up egos etc.

It's interesting to consider, especially just now, after living through the $100 billion S& L bailout, the "Long term capital" affair, and the current Mess exactly how these public corporations should interface with not only their stockholders but tax payers in general.

You'll perhaps recall that Andrew Jackson didn't want them to be created at all; the idea of a quasi "person" with the rights and limitations of liability didn't set well with him at all.

It's my opinion that corporations have assumed too much power and especially so with venue shopping for beneficial tax havens and even more protection from liability. Though you favor the idea of stockholders few options other than that of dumping their stock in disgust and leaving THEIR share of THEIR publically owned company to this bunch of hail-fellow-well-met cabal of miscreants, I'd argue that groups of interested, long term stockholders would be helpful in both making their company more competitive and keeping it somewhat honest in its dealings.

Today there was a spokesman for one such interested group holding Citi stock. They had pushed Citi to break itself up for quite a few years; as fairly savvy financial guys they could see that the "supermarket" for financial services was dangerous. Please don't ask me why these guys didn't simply bolt, but it does occur to me that if they WERE long term, loyal Citi stockholders, or perhaps former employees holding a lot of Citi with a low basis that the option to run off would be a fairly costly tax event.

You mention the shareholder vote. I think that is the part that has atrophied as large holdings are likely to be held by mutuals, pension plans, and then by stockholders who are too small and scattered to find it worth there while delve into the machinations of these huge combines even had they the expertise. I'll sum up my case with Exhibits A thru Q being what we see........ excess at the top, companies selling off reputations that took a century to build, and raw greed overwhelming any and all elements of prudence.

"Freedom". Ahhh yes that great word with so many meanings from "........ nothing left to lose" on up. But then corporations and companies? I like that word company which evokes images of a bright group of enthusiastic working folk developing a COMPANY, an endeavor larger than any one person could undertake, and for their labors, devotion, and creativity hoping to reap more than they would as a sole proprietors of a one man or family business. But is that what we're seeing today? I recall the big shake out at United where the CEO who's tenure was lackluster at best waddling off with a bundle and being all set for life and beyond, while ticket agents of long STANDING and perhaps flat feet? got two weeks "severance" for their tenure and devotion.

Does this seem like a model for which you'd advise your kids to go to work and trust that they'd get something of a fair shake for their efforts?

I know better than to seek "the perfect" but, today, I think we've a LONG way to go before reaching anything approaching diminishing returns, and that we'd be well advised to give up the chest thumping while chanting "we're the best" in favor of taking stock and glancing in the rearview mirror....... and for all too many their shaving mirror.

pat toche

"since the value of the stocks owned by these top executives also dropped sharply, and since their bonuses have been sharply reduced or eliminated, most top executives did suffer greatly along with stockholders when their risky decisions failed. So any distortion in the pay structure toward risk taking was surely limited."

Now here is our rational expectations on-the-equilibrium path just-about-perfect information Gary Becker we have come to know!

pat toche

"since the value of the stocks owned by these top executives also dropped sharply, and since their bonuses have been sharply reduced or eliminated, most top executives did suffer greatly along with stockholders when their risky decisions failed. So any distortion in the pay structure toward risk taking was surely limited."

Now here is the rational-expectations on-the-equilibrium path just-about-perfect information Gary Becker we have come to love!

pat toche

"since the value of the stocks owned by these top executives also dropped sharply, and since their bonuses have been sharply reduced or eliminated, most top executives did suffer greatly along with stockholders when their risky decisions failed. So any distortion in the pay structure toward risk taking was surely limited."

Now here is the rational-expectations on-the-equilibrium path just-about-perfect information Gary Becker we have come to love!

mdf

This article is both condescending and clueless. Condescending because it assumes taxpayers are so dumb that we think that lower exec salaries would have a significant impact on profits. We don't. Clueless because it misses the point of public anger--it's not the salaries per se--it's the outrageous bonuses and severances packages that execs receive while driving companies into the toilet.

For 99% of the workforce, bonuses, raises and severance packages are arbitrary and at the complete mercy of corporate hogs who will sit there with a $5 million bonus check in their pocket while telling employees revenues are down and the best the company can do for staff is an insulting 3% raise that amounts to maybe $1000 if they're lucky, or they will pull one of their willy-nilly reorgs recommended by some other corporate bozo, toss qualified workers out the door with two weeks pay and then waltz out the door with multi-million severances for themselves after they've destroyed a business.

Want to know why taxpayers are angry? Get a clue.

Anonymous


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Bernard Yomtov

since the value of the stocks owned by these top executives also dropped sharply, and since their bonuses have been sharply reduced or eliminated, most top executives did suffer greatly along with stockholders when their risky decisions failed. So any distortion in the pay structure toward risk taking was surely limited.

Cry me a river. These guys helped bring down the economy. They made millions - tens of millions - for years, all the while not having any idea what they were really doing. And whilethat was going on all the free-market types were busy explaining why it was all justified and perfect and so on.

Give it a rest.

Can't live on $500K? Too bad.

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Daniel D

Guess what: Pay controls don't work.

"Lloyds and RBS to offer loans as staff bonuses", FT, April 16 2009.

http://www.ft.com/cms/s/0/7b932404-2ab4-11de-8415-00144feabdc0.html

Daniel D

Guess what: Pay controls don't work.

"Lloyds and RBS to offer loans as staff bonuses", FT, April 16 2009.

http://www.ft.com/cms/s/0/7b932404-2ab4-11de-8415-00144feabdc0.html

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